Monday, March 02, 2009

it's the economy, stupid

On my short drive home from campus today (I almost never drive, but it was raining and I'm exhausted), I heard a report on American Public Radio's show Marketplace about saving money and bartering will slow economic recovery because, as it was explained, if you have your friend cut your hair instead of going to a salon, and if you cook dinner for your friend in exchange, instead of your friend going out to a restaurant, you reduce economic activity, because you reduce the demand for goods and services.

Wrongo! Bartering is economic activity! The Missourian they discussed on the program had a demand for a service, and produced a good in exchange. In fact, I had a friend cut my hair in exchange for a dinner once in graduate school, and we constantly bartered to one another our goods and services - growing food, brewing beer, moving, pet care, child care, even construction, plumbing, electrical work, mechanics. None of us had any cash, because we were impoverished grad students. We had no lack of demand for goods and services, and we engaged in a great deal of economic, productive activity to meet our own and one another's needs. I spent several summers during grad school "unemployed," but without collecting unemployment or welfare. I didn't try to set a dollar value on the amount of my productivity and how much I "earned" in that way, but I do know I rarely needed to buy vegetables, for instance.

What they mean to say, properly put, is that the more we produce for ourselves rather than consume from another source, and the more we exchange with one another rather than purchase, the less monetary activity there is. Money is not equal to economy.

Amazing how easily these ideological words and ideas about economy are rolled out in our culture, and how easily we forget, or neglect that the basis for economy is production and exchange, not just money or share prices.


Bobo the Wandering Pallbearer said...

So the real question is which one of these is the false economy.

Anonymous said...

This is silly. Of course dropping out of the monetary economy slows economic activity. If my boss can only pay me in haircuts and vegetables, and I don't happen to need a haircut or any vegetables this pay period, or anything else he can do for me, I will just have to go unpaid. And if that happened often enough, I would just quit working for him. If he pays me in money, I can get whatever I want with it, not just what he can do for me. That doesn't mean bartering is not economic activity, or that the monetary system can't seize up as well; it just means that bartering slows economic activity (I quit, my boss stops cutting my hair), which is exactly what it sounds like you heard reported. The monetary economy flows just fine almost all the time, but I almost never want anything my boss can do for me, especially given that he lives in a different country, so bartering with him would seize basically all the time.

If you like the idea of less economic activity, a simpler life, a slower pace, and so on, that is perfectly reasonable, but then you should have said that, and not what is easily demonstrable as false.

Doc Nagel said...

Logicians call this the fallacy of misplaced concreteness. The basic problem of our economy at the moment has been caused by this fallacy - the movement of money, and even more abstract and ultimately bizarre notions, has been confused with actual productive work. What you've demonstrated, and what I don't really dispute, is that money is a far more convenient means of exchange than bartering. What you've admitted, and what I claimed, is that productive work is the basis of economic activity - not money. The rest of my post is what we call hyperbole.

By the way, is it really plausible that no one (not just some particular person, and certainly not a "boss") would have anything to trade that would be useful to you?

Anonymous said...

It's not clear to me whether terming this a fallacy allows for the fact that abstractions are often useful tools in their own right, with productive results (mathematics being a good example; for whatever metaphysical reason, in the history of mathematics, formal oddities studied for their own inherent properties despite seeming like practical bsurdities, turn out to have uses in modeling and controlling physical phenomena that are only discovered later). The banking system, though populated by people who fundamentally only care about the movement of money, does create opportunities for real people doing real things. If I want to open a restaurant, and can convince a banker that I know what I am doing and will not blow all the money, but be successful and pay him back with interest, I can get a loan and do it. In an economy without such people, I would need to find someone who happens to have 80 chairs lying around, someone with all the pots and pans I intend to use, someone to rig up the lighting, and
on and on, convincing all of them individually to wait for something
in return one day; this would simply not happen.

I also am not sure I agree that the current problem is fundamentally due to the fact that bankers only focus on money. (Lest you think I'm some kind of market-worshipping nut, I will say, however, that gauging
*progress* or even productivity merely by looking at how much people are earning in such and such a time is wrongheaded.) In the past years people decided they had a new insurance scheme, and a new way to determine the risks that they were insuring, that seemed like magic. And as with all bubbles, people (not just bankers, buyers too) decided that past performance predicted future returns in the housing
market, and that this time was really different, with the added disaster that they deluded themselves into thinking
they were covered for failure with these fancy new insurance policies
or an infinite market for houses when they can't pay for any more. I don't think you need to blame any of that on money per se. People are overconfident and want to think they have a handle on things when they don't, people are impatient hearing negatives about things that look positive, people follow the crowd.

As for your last question (no need for hating on my boss with the
scare quotes, by the way; he's a fine and resonable person), of course there are things I could trade with people. However, I can't think of anyone I know personally who could make use of what I do professionally, the thing I probably do best, which provides the standard of living I like. I know that there are thousands of people who benefit from what I do. But they are not people I know personally,
and I would probably not undertake a job like this on my own from
scratch. My boss likes rounding up business; I would find that
depressing because I think most businesspeople are quintessentially
annoying, but he is good at it, and I benfit. I don't think any of
this would be possible if I lived in an economy where everyone only
focused on physical things in straightforward transactions.

I don't disagree that the most important things in life are the
concrete effects of what we do. I disagree that a formal system that
produces opportunities in the first place is necessarily parasitic or vestigial to the economy than the work of the people who take advantage of the opportunities, though, most definitely.

Doc Nagel said...

None of that gets at the issue I was raising, which was that newz reports like this one only regard movements of money as economic activity. The report says that people bartering with one another for goods and services is equal to a decrease in demand for goods and services. The only way that makes sense is if "goods and services" and the demand for them is measured in one and only one dimension.

I have no doubt that money makes exchanges easier to organize. I also have no doubt that some form of credit makes entrepreneurial and speculative work easier to organize. Financial reporting, however, makes a fetish of money and occludes, or even completely ignores, the productive work of people as a basis (I would argue, the basis) of economic activity.

So I think you're actually arguing at cross-purposes to my point.

By the way, the scare quotes weren't to suggest something terrible about your boss, or anyone's boss. It was to point to the presupposition that one needs someone like a boss in the organization of productive work - that is, that the organization couldn't be the result of mutual deliberation and consent.